Q85. After the appropriate SFAS 52 currency translation method is applied, what will be the impact on Wilson’s quick ratio and

     accounts receivable turnover ratios respectively for 2005?

         Quick Ratio       Accounts Receivable Turnover

A)           No change                    Increase

B)           Increase                        Increase

C)           No change                   Decrease

Q86. Heltzel decides to redefine the functional currency to assess how the all-current vs. the temporal method will impact Wilson’s

     financial statements. Wilson’s gross profit margin will be lower under the:

A)   temporal method, and the total asset turnover ratio will be higher under the all-current method.

B)   all-current method, and the total asset turnover ratio will be higher under the all-current method.

C)   all-current method, and the total asset turnover ratio will be higher under the temporal method.

Q87. After Heltzel finishes his task with Wilson’s financial statements, he moves on to translating the financials for a second recent

acquisition for Hise, Winski Lumber. Heltzel is using the all-current method of translation and determines that Winski has a

negative beginning currency exposure. As he is working, he starts a conversation with a colleague in the finance department,

Nicole Lee. In their conversation, Heltzel states, “If Winski’s local currency appreciated from 2004 to 2005 and the change in

currency exposure was negative, the flow effect would have been positive.” Lee replies, “the appreciation of the local currency

would have also provided a negative holding effect, and the net result would be a translation loss recorded on the financial

statements.”

With regard to their statements:

A)   Heltzel’s statement is incorrect, and Lee’s statement is correct.

B)   Heltzel’s statement is incorrect, and Lee’s statement is incorrect.

C)   Heltzel’s statement is correct, and Lee’s statement is incorrect.

答案和详解如下：

Q85. After the appropriate SFAS 52 currency translation method is applied, what will be the impact on Wilson’s quick ratio and

     accounts receivable turnover ratios respectively for 2005?

         Quick Ratio       Accounts Receivable Turnover

A)           No change                    Increase

B)           Increase                        Increase

C)           No change                   Decrease

Correct answer is A)

The quick ratio takes (cash + accounts receivable) / (current liabilities). Since all of these items are monetary assets and liabilities, they are all remeasured at the current exchange rate, resulting in no change to the ratio. The accounts receivable turnover ratio is calculated as (sales / accounts receivable). Note that the local currency (the U.S. dollar) is depreciating (it takes more $ to buy a pound). Since sales is remeasured at the average rate and accounts receivable is remeasured at the current rate, the depreciating currency means that the remeasured denominator will be smaller than the remeasured numerator, resulting in a larger ratio.

Q86. Heltzel decides to redefine the functional currency to assess how the all-current vs. the temporal method will impact Wilson’s

     financial statements. Wilson’s gross profit margin will be lower under the:

A)   temporal method, and the total asset turnover ratio will be higher under the all-current method.

B)   all-current method, and the total asset turnover ratio will be higher under the all-current method.

C)   all-current method, and the total asset turnover ratio will be higher under the temporal method.

Correct answer is A)

Wilson’s gross profit margin (gross profit / sales) will be lower under the temporal method. Sales under both methods are converted at the average rate, while COGS is converted at the historical rate under the temporal method (note FIFO inventory accounting). Since the local currency (the U.S. dollar) is depreciating, COGS will be higher under temporal method, resulting in a lower gross profit and a lower gross profit margin.

Wilson’s total asset turnover ratio (sales / total assets) will be higher under the all-current method. Non-monetary assets are converted at the historical rate using the temporal method and the current rate under the all-current method. The depreciating local currency means that total assets will be lower under the all-current method. The lower denominator will lead to a higher total asset turnover ratio under the all-current method.

Q87. After Heltzel finishes his task with Wilson’s financial statements, he moves on to translating the financials for a second recent

acquisition for Hise, Winski Lumber. Heltzel is using the all-current method of translation and determines that Winski has a

negative beginning currency exposure. As he is working, he starts a conversation with a colleague in the finance department,

Nicole Lee. In their conversation, Heltzel states, “If Winski’s local currency appreciated from 2004 to 2005 and the change in

currency exposure was negative, the flow effect would have been positive.” Lee replies, “the appreciation of the local currency

would have also provided a negative holding effect, and the net result would be a translation loss recorded on the financial

statements.”

With regard to their statements:

A)   Heltzel’s statement is incorrect, and Lee’s statement is correct.

B)   Heltzel’s statement is incorrect, and Lee’s statement is incorrect.

C)   Heltzel’s statement is correct, and Lee’s statement is incorrect.

Correct answer is A)

Heltzel’s statement is incorrect. Flow effect equals the change in exposure multiplied by the ending minus the average exchange rate. If the local currency is appreciating, the ending rate will be more than the average rate. The negative change in exposure multiplied by the positive exchange rate difference will result in a negative flow effect.